Europe raises interest rates

The weaker euro may prompt the bank to raise rates

The European Central Bank has raised interest rates from 3.25% to 3.5%.

It is the second interest rate rise this year and with it the ECB hopes to cool inflation and prevent consumer prices rising.

The stronger European economy, together with rising oil prices, has pushed eurozone inflation higher.

The bank said that eurozone economic conditions are better than at any time in the past decade.

The weaker euro currency is also seen as a reason behind the interest rate rise.

The bank last raised interest rates by 0.25% to 3.5% on 3 February.

The euro, which firmed to $0.97 overnight in anticipation of a rate rise, slipped slightly on the news.

No surprise

In recent weeks, ECB officials had warned that an interest rate rise is imminent and may be needed to combat inflationary pressures - brought on by rising oil prices - and bolster the euro.

With Europe now coming out of its economic slowdown, there are plenty of reasons for the ECB to raise interest rates.

Oil prices have surged to over $30 a barrel, adding inflationary pressures to the world economy.

Inflation in the 11-nation eurozone reached 2% in January - at the top of the ECB target zone of 0%-2%.

Since the ECB's last meeting on 2 March, further evidence of inflationary pressures in the eurozone has emerged.

In January, producer prices or factory gate prices rose as a result of rising import prices, in turn forced higher by euro weakness and higher oil prices.

An analyst at ABN Amro said: "The continued high level of oil prices in combination with the persistent weakness of the euro is...becoming increasingly worrisome, as it increases the risk that indirect effects of higher energy prices will start to feed through to core inflation and that wage demands will rise."

Opec ministers meet on 27 March to decide whether or not to maintain output restrictions, a move which could bring oil prices down.